Business
Customer Lifetime Value Calculator
Works customer lifetime value, where margin and retention do all the work.
Result
Uses a simple undiscounted model. Money received in five years is worth less than money today, so long-horizon LTV figures should be treated as an upper bound.
Get a Free Business AuditHow the calculation works
Average revenue per customer per period, multiplied by the gross margin on it, multiplied by the number of periods a customer is retained. Where churn is measurable, dividing the margin per period by the churn rate gives the same result and makes the sensitivity to retention explicit.
What moves the number
- Gross margin, not revenue.
- Retention or churn rate, which dominates the result.
- Average revenue per customer per period.
- Whether referrals are included.
Where this one goes wrong
Using revenue rather than margin overstates lifetime value by the whole cost of serving the customer, and because the figure is then compared against acquisition cost that error leads directly to overspending on acquisition. Use margin. The retention assumption is the other sensitivity: halving churn doubles lifetime value, which means a figure built on an optimistic retention assumption can justify almost any acquisition spend.
Before you quote
- Use gross margin, not revenue.
- Use measured churn rather than an assumed retention period.
- Test a shorter retention assumption alongside the expected one.
Questions
About this calculator
Should lifetime value use revenue or margin?
Margin, since the cost of serving the customer has to come out. Using revenue overstates the figure by that whole amount, and because it is then compared against acquisition cost the error leads directly to overspending.
How sensitive is it to retention?
Extremely. Halving churn doubles lifetime value, which means a figure built on an optimistic retention assumption can justify almost any acquisition spend. Using measured churn rather than a hoped-for lifetime is the discipline.
Should referrals be included?
Where they are measured, since a customer who refers others produced value beyond their own purchases. The caution is the same as everywhere else: measured referral rates are useful and assumed ones make the figure unfalsifiable.
The formula
LTV = average sale × purchase frequency × customer lifespan
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How to use this calculator
- Average sale value ($). Enter your own figure; the page starts at $850.
- Purchases per year. Enter your own figure; the page starts at 1.6.
- Average customer lifespan (years). Enter your own figure; the page starts at 5.
- Gross margin (%). Enter your own figure; the page starts at 45%.
The result updates as you type, so you can try a figure, see what it does to lifetime revenue, and change it back. Nothing you enter is sent anywhere or saved.
A worked example
These are the figures the calculator opens with. Every number in the results column below is produced by the same calculation the page runs, so you can follow it through before putting your own figures in.
What goes in
| Input | Value |
|---|---|
| Average sale value | $850 |
| Purchases per year | 1.6 |
| Average customer lifespan (years) | 5 |
| Gross margin | 45% |
What comes out
| Result | Value |
|---|---|
| Lifetime revenue main result | $6,800 |
| Lifetime gross profit | $3,060 |
| Annual value per customer | $1,360 |
| Lifetime purchases | 8.0 |
Each customer is worth $6,800 in revenue over 5 years, $3,060 in gross profit, across 8.0 purchases.
How sensitive the answer is
Holding everything else steady and changing only average sale value, this is what happens to lifetime revenue. It is worth knowing which of your inputs the answer actually hinges on, and which barely move it.
| Average sale value ($) | Lifetime revenue |
|---|---|
| $425 | $3,400 |
| $638 | $5,104 |
| $850 example above | $6,800 |
| $1,275 | $10,200 |
| $1,700 | $13,600 |
Every other input is held at the example value while this one changes, which is not how a real job behaves. Treat it as a guide to which number matters most, not as five separate quotes.
What each figure means
- Average sale value ($)
- A money amount, starting at $850.
- Purchases per year
- A number, between 0 and 500, starting at 1.6.
- Average customer lifespan (years)
- A number, between 0 and 100, starting at 5.
- Gross margin (%)
- A percentage, between 0 and 100, starting at 45%.
What the results tell you
| Result | What it is |
|---|---|
| Lifetime revenue | The headline result. A money figure. |
| Lifetime gross profit | A money figure. |
| Annual value per customer | A money figure. |
| Lifetime purchases | A decimal figure. |
Where these figures usually mislead
Business calculations assume the inputs are steady. Seasonality, a few large customers, and slow payment all break that assumption. A figure that looks healthy annually can still leave you short in a given month.
Keep going
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